Citi Research: Blockchain Tech Could Remake Payments Infrastructure

Jul 11, 2016 | Meghan Elison

Cautious and optimistic researchers agree: the transformation of our financial system has begun. Image: Shutterstock

A new report from Citi Research, “US Digital Banking: Could The Bitcoin Blockchain Disrupt Payments?” explains how a payment system based on distributed ledgers has “the potential to create radically new models.”

Citi emphasizes the applicability of blockchain tech to developing nations that may lack quality payments infrastructure and regulation, as well as enhancing the costly and difficult cross-border remittance process. The report also positions digital currencies and distributed ledger technology as potential complements to the existing financial system, rather than challenges or disruptions to overcome.

The report names Ripple and XRP as a more efficient and scalable network for value transfer than other technologies of the same kind, specifically for real-time settlement. Referencing Santander as the first bank to facilitate international payments using Ripple’s technology, Citi crystallizes the concept of blockchain technology acting as a welcome addition to the bank infrastructure. Citi Research has developed a detailed and nuanced look at blockchain technology, with this report as the fourth installment in the series to date. Throughout all of these reports, Citi concludes that network adoption is key to driving the scalability and regulatory compliance of an new value transfer system. Thus, adoption by financial institutions will ultimately determine which payment systems catch on. The report points out that payments demand will increase exponentially with the advent of the Internet of Things (IoT), which could add billions of connected devices to the world’s economy in a few short years.

Overall, Citi remains conservative on the continued relevance of centralized, traditional settlement systems. However, even the most conservative research supports the need for innovation in payments to support a financial future that will demand a less costly way to provide real-time settlement.